WB forecasts lower global trade growth

MANILA, Philippines - Developing countries including the Philippines would post a slower trade growth this year due to the global economic crisis.

In its newly-released Global Economic Prospects (GEP) report, the World Bank said the escalation of the debt crisis in the euro zone and a slowdown for high-income countries would have strong negative effects on the global trade.

Overall, large trading areas such as East Asia and the Pacific would feel the largest hits to overall gross domestic product (GDP).

“The initial decline in high-income European demand for the exports of other countries (including Europe and Central Asia but also the United States and Japan) would cause the imports of these countries from other regions such as East Asia and the Pacific to decline,” it said.

The Washington-based lender noted that country vulnerabilities to a downturn in the global economy differ by region and composition of exports, and not only on the share of its exports going to Europe.

“Countries more reliant on manufacturers (such as China, India, Malaysia, Philippines, Thailand and Turkey) may not see large swings in their nominal balances, but are more likely to see bigger hits to GDP as the volume of exports falls relatively sharply,” it noted.

The WB report said the country vulnerability also depends on the price and volume sensitivity of their exports in the context of a global downturn.

Developing countries with the closest trade linkages with the European Union (EU) likewise would be hardest hit.

“Hence, while all developing countries will be impacted by a slowdown in import demand from the EU, countries in the Middle East and North Africa as well as Europe and Central Asia could potentially suffer the greatest direct impacts,” it noted.

The WB projected the volume of global trade in merchandise and services to decline to 5.2 percent in 2012 before it picks up to around 7.2 percent next year. Last year’s figure is estimated to have expanded by 6.6 percent.

This year’s 5.2 percent is below the average 5.5-percent growth rate between 1991 and 2011, though it exceeds it in 2013.

“However, even with this growth, global trade will remain well short of the level it would have attained had the 2008/09 recession not occurred. Indeed, at a growth rate of 7.5 percent, it would require some four years for trade to reach trend volumes,” it noted.

The report said a severe crisis in high-income countries could put pressure on the balance of payments and incomes of countries heavily reliant on commodity exports and remittance inflows.

With these projected effects, developing countries have been advised to evaluate their vulnerabilities and prepare contingencies to deal with both the immediate and longer-term effects of a downturn.